There's currently a billboard up in San Francisco that basically says "use AI to reduce your saas costs".
And I'm thinking - has anyone actually done that for something meaningful?
Replacing salesforce as your crm or replacing Shopify as your e-commerce platform?
I get the hype but AI doesn't remove accountability, it just moves it up. Oh you can do with 1 person what 3 people used to do? Great, that 1 person is now accountable for 3 person's jobs. And people are naturally uncomfortable with that - you need to understand what's going on and be able to investigate / fix. It's different than say, weaving machines replacing jobs because weaving machines were consistent. 1 person could confidently produce what x weavers could before. But AI is not, and that variability in output & quality introduces massive friction.
So as of now, in both software and people, there's a real limit to how much AI can replace because the remaining people still are equally accountable.
Vendor lock-in is real and it’s scary. You are helpless to the constant price increases and each passing renewal you get deeper and deeper into the lock-in. Here’s to the day when someone clever with AI can disintermediate this situation. You don’t have to vibecode your own CRM but imagine a deterministic harness that lets you lego-block CRM functions like lead management, opportunity tracking, contact list, campaigns. There shouldn’t be a moat anymore.
Not really. Mixture of models and mixture of experts have been around. It’s easy to switch a project harness from Codex to Claude to Gemini and to open models. You’re not locked in to a model, you’re more concerned about competitive token cost.
Author has a point that some people take it too far but he's losing forest for trees.
People are responsible for their emotional responses. But you also will be impacted by their reaction. It's unrealistic to assume that people will always act unemotional - they are not Spocks. It makes sense to do some padding / emotional prework. If you don't you will end up actually spending MORE time getting what you want.
Example: you are giving feedback to a peer
Direct: this is a poor user experience. Our customers tell us they want xyz, but this experience is doing the opposite. Can you change it?
Padded: hey can I share some feedback on this experience? (Yes) ok our customers tell us they want xyz, but the experience seems to be doing the opposite. Can you help me understand?
Most people would feel more defensive and closed with the first approach than the second, which will make it less likely they will want to help, listen to you, or take you seriously. They'll just be focused on defending themselves. Whereas with the second, you can start to have an actual discussion.
And it's not just the opener, it's throughout.
Words have power. Two sentences can mean the same thing but can lead to different reactions from people.
Or you might not mention something that significantly influences how something is interpreted.
I just gave this feedback yesterday to a team member. The problem was in a presentation she presented a strong conclusion based on a shaky methodology and people tore into it. She basically was attributing an effect to a change pre/post, not with a holdout.
Her underlying data was sound, she had diligently collected the timing of events and such, but she didn't realize how pre/post methodology could be perceived as shaky.
The whole thing could have been avoided had she said something like "we didn't have a hold out, and all of this effect likely isn't from the cause, but directionally there's smoke - our campaigns performed x before, and y after. So this is worth testing to help validate this hypothesis"
Now their message goes from
"This big bad thing happened so I'm going to fix it" to "I don't know exactly what happened, but there's one factor that directionally had an impact so I'm going to test it to validate and can scale from there".
Both essentially say the same thing: there's an opportunity for upside and that's why this is worth testing. But the reaction will be different, so it behooves all of us to be mindful of that.
"In the next 10 years, Colley’s goal is to earn enough to go back to making Roblox games as a hobby."
Kid is making $400k PER MONTH...and he wants to do this for 10 YEARS before he is comfortable retiring. Apparently his FIRE number is $40M.
Everyone's threshold is different and personal. But I think it can reflect a level of anxiety about the cost of living. You aren't OK having $1M or even $10M - you need something far beyond before you feel OK to quit. It's not his fault, more of something the young generations are facing as their parents struggle with the relentless cost of living vs stagnated wages for most except the "laptop class".
> it can reflect a level of anxiety about the cost of living
I think a lot of people (especially young) just haven't done the actual math. Or have lifestyle desires beyond basic not-working.
You can FIRE living in SF for $4M. This gives you $160,000/year basically in perpetuity. If you do it right, there's little to no income tax on that money so 160k should be plenty enough for a 1-person income. 4-person families survive (in SF) on less household income than that.
But yeah a 4M exit is definitely not classic ferrari or even flashy lambo levels of wealth.
FWIW, the 4% rule is for safe withdrawals for around 30 years of retirement, as in, you retire at 65 and you hope to live until 95, and even then it has a non-zero chance of running out of money. It's not a percentage you should use if you want to retire at 40.
4% is the standard number that's quoted by pretty much any financial planner. It's based on backtesting and assume that there's be large downswings along the way.
You have a lot more flexibility around those downswings at 40 than you do at 80. For example you could retire but continue doing work that brings you joy and also happens to make money. A lot of people in this situation start lifestyle businesses or do consulting work, for example.
At $4mm in a market account (not 401k), you also have the option to take out margin loans at shockingly low interest. This gives you untaxed cashflow without touching your principal. 160k untaxed is a lot more cashflow than the same number in salary or retirement distributions.
It's very rational to overshoot in that situation. If you build your lifestyle and then FIRE, you are derisking your budget while you still have income.
But wanting to change your lifestyle when you retire is incredibly risky, especially if you're young without life experience.
Any misstep costs you a fraction of lifetime earnings, and there's no way to recover it.
well you certainly could get the lambo, it would just be 10% of your net worth, which is already far less (ratio) than what most Americans pay for their car...
If he thinks he can get that with a ten year grind, why would he stop short? 10 years isn't long compared to most careers so maybe he should go longer and get a bigger house or something. Of course roblox will probably fall out of fashion and stop being so profitable by then.
A ten year grind, starting as a teen no less, leaves you with a lot of life left to live. And it's not like he won't be able to live a little while in the middle of that grind.
Honestly the people criticizing the kid for this are probably just jealous of his self-made opportunity.
> Everyone's threshold is different and personal. But I think it can reflect a level of anxiety about the cost of living. You aren't OK having $1M or even $10M - you need something far beyond before you feel OK to quit. It's not his fault, more of something the young generations are facing as their parents struggle with the relentless cost of living vs stagnated wages for most except the "laptop class".
I am teen and I think that FIRE has many terms but This still is like a really really FAT fire.
At some point though, I think that what my generation might forget is that even with Fire, you still live a normal life or you would need tremendously more money if your lifestyle is lavish, something which we see in social media (sometimes even on paid money)
If you want to buy 100k$ watches and 1 Million dollar or more lamborghinis, probably even this money would not be enough for you.
But if you want to live a normal life like you do. even 2-3 years of sustained could be MORE than enough even for some slightly expensive side hobbies say horse riding or minor watch collecting even. But if you are online and you see people flexing their 1 million dollar watch, you are gonna add 12 more years of life on a project to get to that level
I'd say its more of an expectation/comparison issue and I am not even sure if 10 years can satisfy that
My personal Fat Fire number is more like ~2 million and I don't even want Fat Fire particularly because I would be happy doing a job that I might like so more of a lean FAT which can be around 300-500k even.
maybe this changes into what is affordable or not within the more western hemisphere though as things feel even more (unaffordable?) but even that doesn't really explain why he might need 40M from my perspective.
To be honest, it can very well be ambition. Might as well make 10 years of money if possible because then the number feels so absurdly large that I can do anything that I want and then I will make my own game. Not realizing that you would only need a fraction of 40M to realisticly achieve that same goal and we are discounting the fact that 400k is even sustainable in a such long period of time.
As someone who been a teen long time ago, I can’t imaging someone in this age responsibly planning their retirement.
I’d 100% blow out all money on some useless crap.
If you are really a teen, who can think so clearly and far-sightedly, you are going to have a really bright future as an adult. I wish you luck and please do something good for this world, instead of chasing high paying job in FAANG.
> Or waste their most fun years slaving for the man.
For what its worth, even I don't know my future so it's a real possibility. But one of the quotes I really like from Witold Pilecki is that, "In the hour of death, I feel joy rather than death" so although there is no such thing as no-regret life but I would hope to try to have less regrets overall in life in this context.
At some point, it boils down to having a job or not. Maybe my first job's gonna be really slaving as you mention. It's hard to know but I pray for a decent job/college hopefully that's got some good work-life balance hopefully.
> If you are really a teen, who can think so clearly and far-sightedly, you are going to have a really bright future as an adult. I wish you luck and please do something good for this world, instead of chasing high paying job in FAANG.
Thank you for your kind words!
I think that chasing a high paying job in FAANG and if I am dissatisfied with the work there or my impact on the world through that and I am still doing it for money, then, its to a degree similar problem to the roblox kid that we talked about.
Wishing for large amounts of retirement money through FAANG to then go what I would wish to do in life with Tech would be weird going through decades of my life into something when I can try to find what I wish to do in life in general and I had thought about it and the answer was tech-related as I felt like an individual can really make some impact through tech (And later I discovered hackernews)
I am frugal as well. Although I don't want to limit myself by saying I will never pick FAANG because maybe situations change and I can change too but money only motivated me in prospects of retirements to then do what I wish to do, so when I had the idea that I can actually do what I want to do (Now-ish) and not have to have a decade or two of my life doing something I might not enjoy/like in agreggate.
(and I have written about it and I will link it here as well on why I picked Tech and not finance)
One of the passion projects I want to take a deeper look during college hopefully if I don't take drop/go to college this year is into creating a small consultancy firm where I can suggest people which infra is nice and cheaper (Hetzner/OVH) and migrate people from either closed solutions like slack or whatever their company might use to an open standard while being cheaper and my idea is that I might charge them just enough even with consultancy fees and helping them migrate over and managing it for them that its more profitable for them
I even bought the domain for this (Actually it was I stumbled on domain accidentally which gave me this idea) https://use.expert [Nothing is in here]
I even made a logo of it myself within paint basically (https://files.catbox.moe/9t5hgw.png) with the tagline just use.expert but I think that quite frankly, I am not an expert right now as in I got to learn way more about all of this too.
So I think that I am motivated by these things more than FAANG company. Right now, I have to work within finding a decent college and that's rough for me because to get a CS college, you have to give an exam that got nothing to do with CS and also which includes chemistry and chem is something that I struggle with (quite a lot) and there are days where I procastinate about it too so I myself don't know what's my future gonna turn out and how I get into decent college.I envy not having too worry about college and my friends who didn't really care about other things and get excellent marks as I used to be quite good too. It's just one of the things I struggle with and I think that I definitely get frustrated by my brain at times too. I think I just hope that I am able to somehow bump it and just get into college somehow wheter by taking drop year again or similar this time solely focused within studies primarily. I just hope that I can make it really. Another thing I wish is for me to be more humble in life as I do feel like Sometimes, I drink too much of my own cool-aid or self-importance and that's not really good. It has to be careful balance and something I wish to improve in my life hopefully. I think I just write in HN because I have forgotten how I used to act with only some memories of my life7-8 years ago and so I don't wish to forget how I am now, a decade later too so most of comments I write are usually for self-preservation sort-of.
I actually got an english exam tomorrow, so wish me luck as I need it :)
Someone thinking they need 40M to escape the "anxiety about the cost of living" is not just a personal decision. It is either extreme greed or delusional. He makes money doing Roblox he is the "laptop class". If you make 400k per month and can't afford to live something is wrong with you. Let's not conflate parents struggling to support their families with whatever this kid is doing.
For reference a worth of $40M puts you well within the top fraction of one percent of all Americans, nevermind the world. If anything given his age it is probably more likely his wealth will become a liability for him rather than an asset. The trope about people who come into that much wealth that young and it creates problems for them exists for a reason. Staying at his desk cranking out more Roblox products might be the best way to keep him away from becoming the victim of his own success.
Anyway good for him. You're right there is a lot of anxiety out there. On some level he should rightly get as much as he can. But let's not pretend you need millions and millions to be safe. We should be working to change that anyway, not merely celebrating massive outliers. I assume since you care about struggling families so much you support his taxation so some of that money can go to people or communities that are struggling? Or since you seem open the idea he needs 40M to survive perhaps you think the government should keep their hands off?
Parent of 2 kids. Parents receive enough judgement. Do whatever works for you!
-cloth diapers? Awesome
-train early? Awesome
-train later? Awesome
There's trade offs for each, and you are going to figure out what works best for you.
If you want to train later and the diaper companies make more money, that's how a market is supposed to work. They're providing a product you value. So all good!
If I've learned anything from parenting, its to give more grace, because you really never know someone else's situation from a short interaction or fact about their parenting.
Parent of three teens headed to college/trades in the next year.
While I completely understand your positivity nihilism, this kind of parent as victim mentality needs to stop altogether.
I’m looking around where I live and literally zero of these people have to raise their children because they didn’t have the access to abortion, contraception or public services.* 99% of parents decided to keep and raise a child.
It is objectively bad to park your kids in front of an iPad for hours a day so you can work
It is objectively bad to have your kids all over social media
It is objectively bad to feed your children ultra processed foods
Etc…
If raising your children is not the most important thing in your life, to the extent that you’re going to actually do scientifically demonstrated correct things like providing them vaccines reducing sugar limiting screen time encouraging outdoor play and exploration and community building etc…then you should not have them.
If you do not have a community that can provide this if you are not independently capable enough… then you should probably not have them.
Being a parent is a transcendent privilege across every period of time, history, class and race - it literally is the driving factor of society.
*In the 18 months since Dobbs between .9% and 1.2% (should be zero but here we are) were victims of rape and forced into birthing that child according to:
Tortillas from the grocery store are UPFs. This sort of "you shouldn't have had kids if you can't cook everything from scratch every day" judgement is outrageous.
Breastfeeding appears to have better health outcomes than formula. It is also hard as shit. I'm absolutely not telling a parent that they should have aborted their kid if they choose to use formula because the mother keeps getting mastitis or because their kid is not strong enough to get a full meal in less than 70 minutes on the breast. Perfection is not required.
> It is objectively bad to feed your children ultra processed foods
It’s not “objectively bad”
To feed your children ultra processed foods.
Once you do the work of defining what ultra processed food is in the first place (which you cannot because there is no definition and your argument is already lost), you will find that many ultra processed foods are objectively good for children and adults.
But then your comment only tells you what parents shouldn’t feed kids. It doesn’t tell you anything about what they should.
And when you look into that things get a lot harder. Meat? Not ultraprocsssed but almost certainly bad for health, especially in anything more than minor amounts. You know what else isn’t ultra processed? Alcohol.
And I can’t help but comment on the ridiculousness of pointing to the percentage of children being the outcome of rape being less than 1% as a somehow low njmber, while ignoring that it was 64,000 children. And rape isn’t the only way parents may struggle or regret having kids. And you’re pretending post partum depression doesn’t exist. Then you ignore all the children born with illnesses that may make it difficult or impossible for parents to manage them. Then you’re ignoring all the states that allow abortions but parents may still not opt for them because of cultural, religious, or even personal ethical considerations. Then you’re ignoring the fact that so many American marriages end in divorce and even the ones that don’t may not remain as tight knit as they were when the parents made the decision to have a child.
Your entire comment is a whole bunch of wrong based on your personal experience, which thankfully appears to have been positive.
> It’s not “objectively bad” To feed your children ultra processed foods.
It is though, it's in the definition, UPF are distinguished from processed food by having additives of no culinary nor nutritional value. So at best, they aren't better than processed food, at worst, they have additive that increase negative health outcomes.
note that if an additive (let's say high-fructose corn syrup) have inferior nutritional value than the product it replace (let's say honey),it is considered UPF, even if the process is quick and easy (i.e: you don't need a big industrial process to be classified UPF)
That's the definition in my country at least, maybe it's different in the US. I think you mistakenly think UPF are the same as processed food. This isn't the case.
[edit] you're right that it isn't objectively bad, because its rare something is "objectively bad". It is objectively worse though.
A good example for upf that is not likely to be bad for you is (European style) frozen pizzas.
And I think your comment is wrong. Parent is right in saying that there is no clear definition of what exactly ultra processed food is. However, in general, processed does not mean having additives, it means processed, running through multiple industrial processes to be made.
> Parent is right in saying that there is no clear definition of what exactly ultra processed food is
The definition of upf is 'food having additive of no culinary or nutritional value'. That's the current definition.
The original nova definition is 'food with additive of no culinary value', which isn't useful for nutritionists, hence it evolved.
I seriously doubt all frozen pizza are upf, the main advantage of frozen food is that you don't have to add nitrite salt or other conservatives. Maybe in some pizzas, to keep colours bright?
.9% and 1.2% of children being result of rape and then forced birth combo is awful lot. It implies that both rape is super prevalent and forced birth is super prevalent.
This in turn likely means that quite a lot of parents were subject of a rape that did not resulted in that kid. (Otherwise we would have to assume that all rape kids are first kid).
We can barely even meaningfully define UPFs, and they aren't cleanly correlated with junk food.
Potato Chips are not UPFs but tortillas with an added preservative are.
Ice cream purchased at the store that has emulsifiers is a UPF. Homemade ice cream is not. But I think we'd agree that it is the fat and sugar in the ice cream that is the bad part to feed to kids.
I will go further and say that eating some ice cream does not hurt kids at all. No, you are not a bad parent because you gave your kid ice cream. And fat is completely legitimate part of food. Likewise sacharides.
It can not be your business and you're allowed to still have opinions on it. It's one thing to discredit opinions you think aren't someone's business - that's fine, maybe even understandable.
But everyone is entitled to their opinion, and you can't just make people shut up. It doesn't work like that.
If you feed your kid rocks yes I think you are stupid and yes I think you should've worn a condom. Whatever, who cares, listen or don't.
Lol iPad, social media, and processed food consumption is going to be your problem? OP was not talking about values, he was talking about the day to day specifics of child rearing.
>If you want to train later and the diaper companies make more money, that's how a market is supposed to work. They're providing a product you value. So all good!
Yeah, if you don't give a shit about the environment.
Technically you should kill as many as possible "for the environment".
What we're really seeing in all this is so many parents are insecure in their parenting and decisions that they feel the need to jump to "do it my way or you're the literal devil."
If we take the charitable view, it's that things like "cloth diapers saved so much money I'm sad others don't try it" - which may be entirely true. But trying to use things like "if you use a diaper you are the cause of climate change" is something beyond.
Not an engineer but reminds me of a similar situation I've seen interviewing
Sometimes we'll ask market sizing questions. We will say it's a case question, it's to see their thought process, they're supposed to ask questions, state assumptions, etc.
Occasionally we'd get a candidate that just doesn't get it. They respond "oh I'd Google that". And I'll coach them back but they just can't get past that. It's about seeing how you approach problems when you can't just Google the answer, and we use general topics that are easily accessible to do so. But the downside is yes, you can google the answer.
Every morning I close all work browser tabs from prior day. 99% of them I don't need again/can just reopen if I need. The 1% I'll note on a todo list or keep open somewhere.
My office mate turns off his computer every night when he leaves, turns it back on again in the morning. Annoys the admins because they like to schedule updates at night.
There's also the fact that US equities are now consistently best asset class. Used to be all over the map. But with rise of passive investing and global markets, capital flows to the winner. Success begets success.
If something changes and suddenly foreign equities start consistently beating out US then capital would flow accordingly. But the US still has a massive advantage from passive flows propping it up in perpetuity.
What if the rise in index funds is a bubble on its own?
It's massive and increasing amounts of money that is not price sensitive and keeps growing. There's an underlying bubble message: "the stock market always bounces back, so keep plowing your money into it even when it's down".
Even more insidious is that this is in part driven by retail who are not paying attention. It's literally the definition of passive, hands off
So at some point, valuations will become increasingly disconnected from fundamentals. Active players will notice and find some way to take advantage. Passive yields will eaten. But at what point will the scales tip and people decide it's a sham and there are better places to park your money? That's when a huge bubble will collapse.
I don't know. Honestly don't know if that will ever happen because I'm not sure what a better investment for average Joe would be than a passive broad stock market index.
I've been invested largely in US index funds for a while now, and I've definitely thought about this. My conclusion is S&P 500 is too big too fail, everyone with various forms of power in the US (economic, political, etc) are incentivized to keep the music going. Sure it feels unsustainable, but there is no way going active can help me—I don't have enough access to the right people, and even if I did, it's better as a hedge strategy. Someone who has a billion dollars can easily pace a bunch of $10M bets on long-shot hedges that will mint a fortune when the music stops. Theoretically I could do something similar at smaller scale, but the people smart enough to have credible strategies are not talking to me, and even if they did I don't have the expertise to judge the advice (the super rich don't either, but at least AUM volume is some signal of competence).
The S&P 500 can and will crash at some point. It has and it will. That's part of the lifecycle of market psychology. We go through cycles of over valuation and under valuation. It's true there are many forces with interest in keeping the markets up but there have always been and it's always crashed because once the psychology changes there is no amount of intervention that can keep the market up.
If you are invested for the long term then just don't think about it. If you want to diversify a little then go for it - slowly. Also keep in mind your US index fund is full of international companies anyways.
I'm along the same lines of thinking. I got most of my funds in SGOV (I manually did t-bills for a while but too lazy to keep it going).
> there is no way going active can help me—I don't have enough access to the right people
It really comes down to this realization. Without access to what all these billionaires and their companies have access to, I just feel like a pawn with everything to lose.
With the rise of ETFs and 401ks people are incentivized (literally) by the US Gov to put their money in the S&P500
And the "instead of picking a needle in the haystack, just buy the whole haystack" only works if there is actual stock picking going on and you get to ride that, but now when there's so much passive investing, it's just everybody buying the haystack, even if there is no needle
Like with the ETFs and 401ks, they will happily buy as much NVDA at its ATHs, it's quite literally massive liquidity feeding orders all the time, coming from retail's monthly paychecks
US stock market index funds will crash when the US stock market crashes. That will require very large sums of capital to decide to move away from US capital markets. To give an idea of how much money would need to move - VTSAX alone is about $2.1 trillion, with hundreds of billions of dollars of shares of each Mag7 stock.
You basically need the world to decide that EMEA/JAP markets are collectively stronger than the US stock market, and to collectively move their capital outside the US to be deployed in EMEA/JAP. Moves away from Mag7 to US value stocks will be captured by the US stock market index funds; moves into commodities will be seen as opportunities to buy the dip before a market rebound. You can view attempts by US private equity to purchase real estate as attempts to hedge against overvaluation in US markets, but if the US has another Great Depression, those real estate purchases won't be able to fetch high rents or prices anyway.
In short, just follow the normal advice, which is not to put all your money into US domestic stocks, but to also purchase foreign stock market index funds, which help to hedge against the risk of the entire US stock market crashing. In the long run, US index funds are still a good investment - US courts still are quite powerful to settle contract disputes, the US does not have capital flight controls, and American business culture is still one of the hardest working, greediest forces on the planet - a Great Depression v2 would not change that.
All assets are correlated. When the stock market inevitably crashes, and it will, we just don't know when, so will other world stock markets. And the cycle will repeat.
Capital is not going to "move away from US capital markets" because those markets tend to over-perform and will likely still over-perform. What companies are you investing in that are not nVidia, Google, Amazon, Meta, Apple, Open-AI, Anthropic etc. etc.?
It's really hard to predict market crashes. I think it makes sense to be more cautious but also that's what could have been said a year or 2 or 5 years ago, in which case you would have missed a lot of potential gains.
> US stock market index funds will crash when the US stock market crashes. That will require very large sums of capital to decide to move away from US capital markets. To give an idea of how much money would need to move - VTSAX alone is about $2.1 trillion, with hundreds of billions of dollars of shares of each Mag7 stock.
I'd like to make a technical note about markets because I see this mistake repeated in the comments. The money doesn't have to move out of the US markets to somewhere else for the stock market to crash. It only requires a destruction of confidence. For a hypothetical example, suppose the S&P 500 closes at 7000 on a Friday, and everyone loses confidence in the S&P 500 over the weekend (for whatever reason). The market can open on Monday 3500 with not a share traded before the open (no money was moved out of the market), and investor portfolio values are now cut in half. Since confidence is broken, nobody buys the dip, and the market closes Monday down to 3000.
It's an extreme example, but it's worth understanding the fundamental underpinnings. The markets are a confidence game. Sometimes we forget because we have good reason to be confident (e.g. in the S&P 500) and so it fades into the background that something like this could even happen, but it's not hard find these sorts of events in history.
You are correct, but only insofar as destroying paper value. If investors have a firesale because the market would prefer to realize whatever value might be rescued, even at a loss, but the proceeds of the sale stay inside the US, then that capital is more likely to be reinvested in the US once investor confidence returns. This is the underlying reason why most long-investors should continue to hold their positions despite short-term losses. The fact that NVDA has a $4.6T market cap, as a product of about 24 billion shares multiplied by about a $190/share price, does not mean that the market believes that all 24 billion shares could be sold for that $190/share price. That is a convenient fiction that falls apart when investor confidence bursts, but that does not in and of itself truly represent value destruction (Nvidia employees will still wake up the next day and go to work), at least not until second-order-effects kick in (e.g. Nvidia employees leave because their RSU packages are no longer competitive compensation). People who stay long in the stock market can wait for investor confidence to return, in which cash is reinjected into the stock market, and the losses in diversified portfolios are not realized. If the S&P 500 investor takes a 50% hit in a crash, decides to hold, then the S&P 500 rises by 140% in the next two years, then the investor who held will still realize a nice return.
The way in which that narrative does not happen is if the capital leaves entirely to be locked up in other investments; in the context of index funds which would anyway rebalance to rise with those other investments, if the capital leaves for other countries, to investments that are not covered by the index funds.
Correct. The price of the market is the price people are willing to pay. It is not directly related to the move of capital. That said prices are also a function of supply and demand, if there is no demand (e.g.) for US stocks then it is more likely price will go down. If everyone wants to sell US and buy Europe, e.g. because they think the European competitors to Apple, Google, Amazon, nVidia and such will outperform, then presumably the prices at which those companies trade will trend down.
Related thought: maybe the rise in passive is a permanent buoy for positive market sentiment
In the past bad news led to jumpiness and people getting out, including retail. Now you have a massive amount of money that keeps going. So if you jump out..you see that so much money continues to plow in, and price starts going back up. So you come back in so you don't miss out. And on we go.
I think it's very possible passive investing is changing the dynamic, where downturns are more muted. It's overall a good thing but again, as I said above, it feels like it's setting up an even bigger ruin down the road
I don't even think it's about active vs. passive index funds.
Even if people were to do active bets on equity, what matters is the amount of money flowing in the asset class, so as long as there's an infinite stream of long investments into equity (due to 401k, etc.), the prices will rise.
You'd need people to actively balance their allocation between asset classes rather than stock X vs Y to counter those equity bubbles, but I don't think it's happening (and equity becomes too big to fail given the link with things like pension in the US).
If equities are "too big to fail" then governments will do everything in their power to ensure prices continue to go up.
If the right price for equities is 30% of their current value, and if achieving that price means the regime will fall in the next election (or sooner due to civil disorder), then the regime will not allow that to happen.
A regime that controls its own currency has nearly unlimited power to prop up whatever asset classes it wants to, from bonds to equities to housing.
Doing that has consequences like inflation which people don't like, and could cause them to vote the bastards out. But the regime could also print even more money for direct deposits into voters' bank accounts before an election.
So it seems like equities have limited downside until there's a regime change.
When the Fed purchases bonds, that reduces interest rates, and lower rates make asset prices go up.
The Fed purchases the bonds with cash created out of thin air with a journal entry. That newly created cash is used by private actors to purchase assets, which makes asset prices go up.
The Fed could purchase equities directly, but it doesn't have to own them to influence their prices.
This is a fundamental misunderstanding of why index funds are effective. Being over invested into U.S. equities is a risk if you hold outsized U.S. index funds (esp. if you have a large allocation in the S&P500, you do not own the market portfolio), but there are other risks being invested into foreign equities as a U.S. investor.
Maybe there will be a "huge bubble" in the future but it doesn't look that huge right now.
Forward P/E for S&P500 is about 22. That is 4.5% yearly return even if there is no growth beyond 2026. This is also real growth as earnings raise with inflation so nominal expected return is about 7% even if there is 0 growth beyond 2026.
Meanwhile risk-free rate (basically short term government bonds) is around 3.5% per year right now (nominal).
That 7% is quite pessimistic as some "net growth" (growth - costs of generating it) is expected beyond 2026 and you can only get 3.5% "risk-free" I am not sure why people call current valuations crazy or what their expectations for "fair valuations" are. Equity risk premium seems to be still above 4%. Maybe that's on the low side but far away from bubble territory, let alone "a huge bubble".
Passive, (especially global) index funds doing so well and outperforming the vast majority of actively managed, general funds () is not a given, but they point to a different problem.
It means that most actively managed funds are still overpriced (fees), don't deliver efficient price discovery, and in some cases destabilize the market by making consistently wrong bets.
That's not the fault of index funds. In fact they make it easier for high performing investors who have deeper insights.
There are plenty of funds that don't compete on just on beating the index, but have other goals.
Not to mention security. I'd trust Google more not to have a data breach than open AI / whomever. Email accounts are hugely valuable but I haven't seen a Google data breach in the 20+ years I've been using them. This matters because I don't want my chats out there in public.
Also integration with other services. I just had Gemini summarize the contents of a Google Drive folder and it was effortless & effective
While I don’t disagree with you, for historical purposes I think it’s important to highlight why google started its push for 100% wire encryption everywhere all the time:
The NSA and GHCQ and basically every TLA with the ability to tap a fibre cable had figured out the gap in Google’s armour: Google’s datacenter backhaul links were unencrypted. Tap into them, and you get _everything_.
I’ve no idea whether Snowdon’s leaks were a revelation or a confirmation for google themselves; either way, it’s arguably a total breach.
When I worked at PayPal back in 2003/4, one of the things we did (and I think we were the first) was encrypt the datacenter backhaul connections. This was on top of encrypting all the traffic between machines. It added a lot of expense and overhead, but security was important enough to justify it.
Not that I disagree with your assessment but in the spirit of hn pedantry - google had a very significant breach where gmail was a primary target and that was “only” 16 years ago in mid 2009. So bad that it has its own wikipedia page: https://en.wikipedia.org/wiki/Operation_Aurora
And I'm thinking - has anyone actually done that for something meaningful?
Replacing salesforce as your crm or replacing Shopify as your e-commerce platform?
I get the hype but AI doesn't remove accountability, it just moves it up. Oh you can do with 1 person what 3 people used to do? Great, that 1 person is now accountable for 3 person's jobs. And people are naturally uncomfortable with that - you need to understand what's going on and be able to investigate / fix. It's different than say, weaving machines replacing jobs because weaving machines were consistent. 1 person could confidently produce what x weavers could before. But AI is not, and that variability in output & quality introduces massive friction.
So as of now, in both software and people, there's a real limit to how much AI can replace because the remaining people still are equally accountable.
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